Moody's affirms Compaq Computer <CPQ.N> =2
In light of the new authorization the company has suspended
its systematic repurchase program which it has used to offset
earnings dilution due to the exercise of stock options.
The outlook continues to be positive.
The confirmation reflects Compaq's strong cash position and
overall liquidity, as well as its lowly leveraged balance
sheet.
As of the quarter ended September 30, 2000, the company had
$2.9 billion in cash and cash equivalents, and over one third
of its $26 billion of assets were in cash, cash equivalents,
and accounts receivable.
Meanwhile, the company's debt stood slightly above $1
billion which, when combined with the improving cash flows and
overall operations at Compaq, give it enough financial
flexibility to support the stock buyback without impairing the
credit rating or outlook.
Ratings confirmed include the following:
Compaq Computer Corporation - $3.0 billion bank debt due
2002, rated Baa2; $500 million senior notes due 2002 and 2005,
rated Baa2; and $2.0 billion shelf registration, rated (P)Baa2
for senior debt, including medium term notes.
Compaq Computer Corporation - $1.5 billion commercial paper
program at Prime-2.
Compaq Financial Services Corporation - $1.0 billion
commercial paper program at Prime-2.
Moody's noted that the diversification of operations at
Compaq into the enterprise and service spaces, and the strength
of those diversified operations, help moderate the ongoing
pricing flux of the consumer and commercial segments.
The personal computer sector, from which Compaq derives a
significant portion of its revenues, has recently come under
incremental pricing pressures as the uncertain holiday demand
picture continues to unfurl.
The rating agency noted, however, that such pricing
pressures within the consumer and commercial arenas have been
an industry hallmark for the last several years.
Moody's believes Compaq's restructured operations are in a
much stronger position to be able to manage through such
pressures successfully than they had been historically.
Significant challenges remain, however, including
continuing to drive top-line growth in an intensely competitive
environment.
Simultaneously, Compaq must create additional efficiencies
in operations to prevent margin erosion, as well as continue to
invest in new products, given the short life cycles of those in
the consumer and commercial arenas.
Other challenges include better integrating and leveraging
information-technology services into the enterprise solutions
and services segment, and improving momentum and mind fshare in
the fast-evolving market for net-centric computing and
services.
The positive rating outlook reflects our view that evidence
is building that Compaq has achieved the beginnings of a
sustainable turnaround which, if extended, and also combined
with the maintenance of a highly liquid and lowly leveraged
balance sheet, could exert upward rating momentum over time.
Compaq Computer Corporation, based in Houston, Texas, is a
global information technology company, and is the largest
worldwide supplier of computing systems.
REUTERS
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